“Rule of Law” Issues Top of Mind for Canadian Firms Active in China

What’s the major concern for Canadian firms doing business in China? It centers around “rule of law” issues such as intellectual property rights, according to a think tank focused on Canadian-Asian relations.

In a survey conducted by the Asia Pacific Foundation of Canada, Canadian firms active in China identified intellectual property rules and practices, inconsistent interpretation of regulation and laws, and weak dispute-settlement mechanisms in China as their biggest challenges.

The think tank said U.S. and German firms cited labor shortages as the top challenge, and U.K. and Swiss firms were most concerned about slowing global growth.

Why the difference? In an interview, the think tank’s chief executive, Yuen Pau Woo, said it likely reflects the fact that Canadian companies don’t operate as many factories in China as U.S. and German firms, and therefore don’t need large numbers of workers.

Most of the Canadian firms surveyed said it was tougher to conduct business in China than in other countries, and about four in five said they supported negotiations for a Canada-China free trade agreement, which they believe would create a fairer and more predictable business environment and boost business.

Although China is Canada’s second-largest trading partner, it accounts for a just 7% share of Canada’s total trade–a blip compared to the roughly 75% share of trade with the U.S.

Survey respondents said the most effective way to overcome problems of doing business in China was to have a Chinese partner to stick-handle problems and to help obtain government contracts.

Three-quarters of the Canadian companies said their Chinese operations were profitable, slightly down from 76% in the 2010 survey.

Although Chinese investment in Canada is a hot-button issue, thanks to the proposed $15.1 billion buyout of Canadian energy company Nexen Inc. by Cnooc Ltd., China’s largest offshore oil and gas producer, only 28% of companies surveyed said they were seeking Chinese investors, compared with almost three-quarters who weren’t.

Mr. Woo said the companies surveyed were mostly small and medium-sized firms that likely don’t have a need for deep-pocketed investors. ”It doesn’t reflect the oil and gas industry,” he said.

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Canada Real Time provides insight and analysis into what’s making news in Canada, a country punching above its weight on the world stage thanks to its vast resources and strong banking sector. Drawing on the expertise of The Wall Street Journal and Dow Jones Newswires, we take a look at developments in fields ranging from business to politics to culture. You can contact the editors at canadaeditors@dowjones.com